Deepening divergence seen for Asia economic outlook amid global slowdown

As top financial officials from the world's largest economies fretted about the weak global economic growth over the weekend, analysts forecast a mixed outlook for Asian economies with those implementing tough structural reforms likely to outperform.

After two days of discussions last week in Washington, finance officials from the Group of 20 nations called for bolder action to tackle sub-par global growth problems, citing the eurozone as the top concern.

Even in Asia, latest economic data such as the purchasing managers' index(PMI) and industrial production have suggested that growth momentum also seems to have stalled in recent months.

According to Deutsche Bank Research, China remains characterized by anemic domestic demand. Some glimmer of an upside comes from hints of a pick-up in exports, which would be critical to maintain steady growth.

India, for its part, is undergoing a modest recovery with business and consumer confidence rising, while production and auto sales are also picking up. But weak bank credit growth and tax collection, as well as lackluster trade, underscore a lack of vigor in the economic dynamic.

Political risk has spiked in Indonesia with adverse implication for capital flows, interest rates, and the rupiah. South Korea, meanwhile, seems to be hampered by an uncertain external demand environment and weak domestic demand. Thailand is also struggling to get out of its economic and political doldrums.

On the bright side, Malaysia and the Philippines are Asia's stalwarts in this cycle. In Malaysia, economic fundamentals are improving with rising growth, steady current account surplus, and structural reform-induced decline in the fiscal deficit. As for the Philippines, strong consumption and investment continue to shore up growth.

While Asia is by no means about to flounder, things are not quite as shiny upon closer inspection. HSBC Global Research said a stronger U.S. dollar, easing property prices, and wary consumers are depriving Asian economies of fuel.

The underlying challenge that the region faces is the slowdown in Asia -- not cyclical but structural. For Asia's economies to be on a more sustainable growth path, each Asian country needs to enact more reforms, rather than keep relying on stimulus to drive growth.

As a full recovery of demand in the West sufficient enough to pull Asia out of its malaise remains a distant prospect, Standard Chartered Global Research pointed out that reviving growth in Asia is largely dependent on how individual economies carry out deep structural reforms such as pruning subsidies, spending more on quality infrastructure, boosting education, opening up further to foreign direct investment, and, perhaps most importantly of all, introducing greater competition in local markets.

These are politically tough choices to make, but the longer they are put off, the more difficult times Asian economies will face in generating long-term growth.

In the case of China, Standard Chartered said the old model of growth, which was dependent on investment and exports, is unlikely to drive China through the next stage of its development from a middle-income to a high-income country.

Consumption will have to gain more importance in the economy relative to investment. And the service sector should also gain importance relative to construction and manufacturing.